WASHINGTON, February 8, 2011 – FCC Chairman Julius Genachowski pushed for Universal Service Fund reform at the offices of the Information Technology & Innovation Foundation (ITIF) on Monday, a day in front of the Commission’s vote to adopt a rulemaking on the issue.

Genachowski began his remarks by sticking closely to the message he has been pushing since the administration unveiled the National Broadband Plan (NBP) in March of last year: without significant national resources dedicated to broadband deployment and adoption, the U.S. will lose its tenuous grasp as a world leader in Internet innovation and relegate itself to the also-rans of the next generation economy.

One of the major components of the NBP includes reforming the Universal Service Fund (USF) and its closely related Intercarrier Compensation (ICC) system – programs lawmakers on both sides of the aisle have described as “broken.”

The USF subsidized the build out of the telephone system in the last century to areas where it was not cost-effective for private industry to do so. Subsequently, it subsidized service to those so-called “high cost” lines and phone service to low-income families. The ICC is a system by which carriers make payments to each other for connecting calls.

While these programs were integral in subsidizing the deployment and maintenance of telephone access for Americans during the 20th century, Genachowski was quick to emphasize that the telephone subsidies of the last century have no place in this one.

“The program is still designed to support traditional telephone service,” he said. “It’s a 20th century program poorly suited for the challenges of a 21st century world.”

The problems with the USF, Genachowski contends, lay with inefficiencies, a lack of accountability, and in some cases, even rewarding counterproductive behavior by telephone carriers.

True to his growing reputation as a compromiser, the chairman explicitly rejected both the notion that the USF is so broken that it ought to be done away with, as well as the notion that the flaws in the system did not warrant a major overhaul.

The Notice of Proposed Rulemaking slated for the FCC’s monthly open meeting on Tuesday would lay out a two-stage approach. In the near term, the rules would attempt to reduce inefficiencies in the system, close loopholes and phase down intercarrier payments. The second stage would focus on drawing down the USF to elimination, while transitioning funds into a new Connect America Fund (CAF), focused on the buildout and maintenance of a nationwide broadband network, capable of providing both high-speed data and traditional telephony services.

Though he painted with broad strokes during the speech, the chairman promised the plan on slate for Tuesday’s vote would include specific proposals.

“Change may not always be easy, but ignoring the problems with USF and ICC is not an option,” said Genachowski. “This is not a question of if we should reform the system, but how we reform it.”